ex10-1.htm


    Exhibit
10.1

     

    NONQUALIFIED
STOCK OPTION AGREEMENT

    


    


    THIS
OPTION AND THE SHARES OF COMMON STOCK COVERED HEREBY (COLLECTIVELY, THE
"SECURITIES") HAVE NOT BEEN REGISTERED UNDER ANY STATE SECURITIES LAW OR THE
SECURITIES ACT OF 1933, AS AMENDED ("FEDERAL ACT") UPON RELIANCE OF EXEMPTIONS
AVAILABLE THEREFOR..  THE SECURITIES WILL BE ACQUIRED FOR INVESTMENT
AND MAY NOT BE OFFERED FOR SALE, HYPOTHECATED, SOLD OR TRANSFERRED, NOR WILL ANY
ASSIGNEE OR TRANSFEREE THEREOF BE RECOGNIZED BY SURFNET MEDIA GROUP, INC. AS
HAVING ANY INTEREST IN SUCH SECURITIES IN THE ABSENCE OF (i) AN OPINION OF
COUNSEL THAT THE TRANSACTION BY WHICH SUCH SECURITIES WILL BE OFFERED FOR SALE,
HYPOTHECATED, SOLD OR TRANSFERRED IS EXEMPT UNDER THE FEDERAL ACT, AND
APPLICABLE STATE SECURITIES LAWS; OR (ii) AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT TO THE SECURITIES UNDER THE FEDERAL ACT AND APPLICABLE STATE
SECURITIES LAWS.

    
 

    SURFNET
MEDIA GROUP, INC.

    NONQUALIFIED
STOCK OPTION

    


    


    No. of
Shares – 1,500,000

    Dated:
May 31, 2005

    


    


    This certifies that, for value
received, Eric Schedeler, hereinafter referred to as the “Optionee,” or his
successors and assigns, is entitled, subject to the terms and conditions
hereinafter set forth, at or before 5:00 o'clock P.M., Eastern time, subject to
adjustment upon the occurrence of the contingencies set forth, to purchase one
million five hundred thousand (1,500,000) shares of $.0001 par value Common
Stock (the "Common Stock") of SurfNet Media Group, Inc., upon the exercise of
this nonqualified stock option (the “Option”), at twenty-five cents ($.25) per
share (the “Option Price") and is subject to adjustments upon the occurrence of
the contingencies set forth in this Option..  The Optionee and SurfNet
are hereinafter referred to collectively as the “Parties.”

    


    Upon delivery of this Option with the
subscription form annexed hereto, duly executed, together with payment of this
Option Price for the shares of Common Stock thereby purchased, at the principal
office of SurfNet, 2801 South Fair Lane, Suite 101, Tempe, Arizona 85282, or at
such other address as SurfNet may designate by notice in writing to the Optionee
hereof, the Optionee of this Option shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased.  All
shares of Common Stock which may be issued upon the exercise of this Option
will, upon issuance, be fully-paid and non-assessable and free from all taxes,
liens and charges with respect thereto.


    
      
         

      

      
        -1-

        
          

        

      

      
         

      

    

    This Option is subject to the following
terms and conditions:

    


    
      	
               
      

            	
              1.

            	
              Exercise of
      Option.

            


    

    


    
      	
               
      

            	
              a.

            	
              This
      Option may be exercised in whole at any time, or in any part from time to
      time, prior to 5:00 o'clock P.M., Eastern time, on or before June 1, 2015,
      but not thereafter, as to all or any part of the number of shares of
      Common Stock then subject hereto to the extent such shares have vested.
      This Option is full vested as of the date
  hereof.

            


    

    


    
      	
               
      

            	
              b.

            	
              In
      case of any partial exercise of this Option, SurfNet shall execute and
      deliver a new Option of like tenor and date for the balance of the shares
      of Common Stock purchasable hereunder.  This Option may not be
      exercised as to less than one thousand (1,000) shares at any one time
      unless the number of shares purchased is the total number at the time
      available for purchase under this Option. This Option may be exercised
      only as to whole shares; fractional share interests will be disregarded
      except that they may be
accumulated.

            


    

    


    
      	
               
      

            	
              c.

            	
              Upon
      any exercise of this Option, Optionee may, in lieu of payment of the
      Option Price in cash, surrender this Option (or any successor hereto or
      fraction hereof) (valued for such purpose at the Fair Market Value of the
      underlying Common Stock for which such Option is exercisable on the date
      of such exercise less the Option Price then in effect) and apply all or a
      portion of the amount so determined to the payment of the Option Price for
      the number of shares of Common Stock being purchased as to all the number
      of whole shares of Common Stock then subject
      hereto.    The term "Fair Market Value" shall mean the
      means the fair market value of the Common Stock, as either determined by
      the Board in good faith on such basis as it deems appropriate or the
      average of the Closing Sales Price of the Company’s Common Stock as quoted
      on the OTC Bulletin Board, Amex, Nasdaq or NYSE for the five (5) trading
      days immediately preceding the date of notice or exercise which relates to
      said determination of Fair Market
Value.

            


    

    


    
      	
               
      

            	
              2.

            	
              Adjustment of Option
      Price and Number of Shares Purchasable Hereunder.  In
      case SurfNet shall at any time subdivide the outstanding shares of its
      Common Stock, this Option Price in effect immediately prior to such
      subdivision shall be proportionately decreased, and in case SurfNet shall
      at any time combine the outstanding shares of its Common Stock, this
      Option Price in effect shall immediately prior to such combination be
      proportionately increased, effective from and after the record date of
      such subdivision or combination, as the case may
  be.

            


    

    


    
      
         

      

      
        -2-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              3.

            	
              Notice of
      Adjustments.  Upon any adjustment of this Option Price
      and any increase or decrease in the number of shares of Common Stock
      purchasable upon the exercise of this Option, then and in each such case,
      SurfNet, within thirty (30) days thereafter, shall give written notice
      thereof to the Optionee of this Option at the address of such Optionee as
      shown on the books of SurfNet, which notice shall state this Option Price
      as adjusted and the increased or decreased number of shares purchasable
      upon the exercise of this Option, setting forth in reasonable detail the
      method of calculation of each.  The Optionee of this Option
      shall have ten (10) days in which to review the proposed adjustment and to
      object to the proposed adjustment by notifying SurfNet in writing of such
      objection, setting forth in reasonable detail the reasons for such
      objection.  If the Optionee fails to object to the proposed
      adjustment during such ten (10) day period the proposed adjustment shall
      become final.  If the Optionee objects to the proposed
      adjustment then SurfNet and the Optionee shall attempt to reconcile their
      differences and if unable to do so such adjustment shall be determined by
      SurfNet's independent accountants whose determination shall be
      final.

            


    

    


    
      	
               
      

            	
              4.

            	
              Notice of Exercise of
      Option.  This Option may be exercised by this Optionee by
      a written notice signed by this Optionee, and delivered or mailed to
      SurfNet to the attention of the Chief Executive Officer.  The
      notice shall specify the number of shares of Stock which this Optionee
      elects to purchase hereunder, and be accompanied by (i) a certified or
      cashier’s check payable to the Company in payment of the total Exercise
      Price applicable to such shares as provided herein, (ii) surrender this
      Option (or any successor hereto or fraction hereof) (valued for such
      purpose at the Fair Market Value of the underlying Common Stock for which
      such Option is exercisable on the date of such exercise less the Option
      Price then in effect) and apply all or a portion of the amount so
      determined to the payment of the Option Price for the number of shares of
      Common Stock being purchased, (iii) shares of Stock owned by Optionee and
      duly endorsed or accompanied by stock transfer powers having a Fair Market
      Value equal to the total Exercise Price applicable to such shares
      purchased hereunder, (iv) a certified or cashier’s check accompanied by
      the Option (valued for such purpose at the Fair Market Value of the
      underlying Common Stock for which such Option is exercisable on the date
      of such exercise less the Option Price then in effect) whose Fair Market
      Value when added to the amount of the check equals the total Exercise
      Price applicable to such shares purchased hereunder; or (v) a certified or
      cashier’s check accompanied by a certificate or certificates representing
      the number of shares of Stock whose Fair Market Value when added to the
      amount of the check equals the total Exercise Price applicable to such
      shares purchased hereunder.  Upon receipt of any such notice and
      accompanying payment, the Company agrees to issue to the Optionee stock
      certificates for the number of shares specified in such notice registered
      in the name of the Optionee.

            


    

    


    
      	
               
      

            	
              5.

            	
              Charges, Taxes and
      Expenses.  The issuance of certificates for shares of
      Common Stock upon any exercise of this Option shall be made without charge
      to the Optionee hereof for any tax or other expense in respect to the
      issuance of such certificates, all of which taxes and expenses shall be
      paid by SurfNet, and such certificates shall be issued in the name of, or
      in such name or names as may be directed by, the Optionee of this Option;
      provided, however, that in the event that certificates for shares of
      Common Stock are to be issued in a name other than the name of the
      Optionee of this Option, this Option when surrendered for exercise shall
      be accompanied by an instrument of transfer in form satisfactory to
      SurfNet, duly executed by the Optionee hereof in person or by an attorney
      duly authorized in writing.

            


    

    


    
      
         

      

      
        -3-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              6.

            	
              Certain Obligations of
      SurfNet.  SurfNet will not, by amendment of its
      Certificate of Incorporation or through reorganization, consolidation,
      merger, dissolution or sale of assets, or by any other voluntary act or
      deed, avoid or seek to avoid the performance or observance of any of the
      covenants, stipulations or conditions to be performed or observed by
      SurfNet, but will at all times in good faith assist, insofar as it is
      able, in the carrying out of all provisions of this Option and in the
      taking of all other action which may be necessary in order to protect the
      rights of the Optionee of this Option against dilution.  Without
      limiting the generality of the foregoing, SurfNet agrees that it will not
      establish or increase the par value of the shares of any Common Stock
      which are at the time issuable upon exercise of this Option above the then
      prevailing Option Price hereunder and that, before taking any action which
      would cause an adjustment reducing this Option Price hereunder below the
      then par value, if any, of the shares of any Common Stock issuable upon
      exercise hereof, SurfNet will take any corporate action which may, in the
      opinion of its counsel, be necessary in order that SurfNet may validly and
      legally issue fully-paid and non-assessable shares of such Common Stock at
      this Option Price as so adjusted.

            


    

    


    
      	
               
      

            	
              7.

            	
              Continuance of
      Engagement. Nothing contained in this Option shall confer upon this
      Optionee any right to continue in the engagement of SurfNet or constitute
      any contract or agreement of engagement. Nothing contained in this Option
      shall interfere in any way with the right of SurfNet to (i) terminate the
      engagement of this Optionee, or (ii) reduce the compensation received by
      this Optionee from time to time, provided that nothing herein shall modify
      any written engagement or consulting agreement as may now exist or
      hereinafter be entered into between Optionee and
  SurfNet.

            


    

    


    
      	
               
      

            	
              8.

            	
              Effect of Termination
      of Relationship.  If this Optionee ceases to be engaged
      by SurfNet for any reason, this Option shall terminate to the extent not
      vested. Upon termination of Optionee's engagement by reason of retirement,
      disability or death, this Option, to the extent vested, may be exercised
      by this Optionee or his executor or administrator, as the case may be, at
      any time prior to January 1, 20June 1,
2015..

            


    

    


    
      	
               
      

            	
              9.

            	
              Change of
      Control.  This Option shall accelerate to the extent not
      vested in the event of a Change of Control, provided Optionee remained
      employed by SurfNet not less than six months prior to the Change of
      Control.  For purposes hereof, "Change Of Control" means a
      change in control of SurfNet of a nature that would be required to be
      reported in response to Item 6(e) of Schedule 14A of Regulation 14A under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
      whether or not SurfNet is subject to the Exchange Act at such time,
      including any of the following
events:

            


    

    


    
      
         

      

      
        -4-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (a)

            	
              Any
      Person becomes the Beneficial Owner, directly or indirectly, of securities
      of SurfNet representing a majority of the combined voting power of or
      equity interest in SurfNet in connection with a merger or otherwise. In
      applying the preceding sentence, securities acquired directly from
      SurfNet, its subsidiaries, or affiliates by or for the Person shall not be
      taken into account.

            


    

    


    
      	
               
      

            	
              (b)

            	
              A
      merger or consolidation of SurfNet is consummated with any other
      corporation or entity or any other form of business combination pursuant
      to which the outstanding stock of SurfNet is exchanged for cash,
      securities or other property paid, issued or caused to be issued by the
      surviving or acquiring corporation or entity unless the stockOptionees
      immediately before the merger or consolidation would continue to own
      equity securities that represent (either by remaining outstanding or by
      being converted into equity securities of the surviving entity) at least a
      controlling interest in SurfNet or such surviving or acquiring entity
      corporation immediately after such merger or
  consolidation.

            


    

    


    
      	
               
      

            	
              (c)

            	
              A
      sale, transfer or lease by SurfNet of all, or substantially all, of
      SurfNet's assets is consummated.

            


    

    


    “Beneficial
Owner" has the meaning set forth in Rule 13d-3 under the Securities Act of 1993,
as amended.  “Person” has the meaning given in Section 3(a)(9) of the
Securities Act of 1933, amended, as modified and used in Section 13(d) of the
Securities Act of 1933, amended, and will include a "group," as defined in Rule
13d-5 promulgated thereunder. However, a person will not include SurfNet or any
of its affiliates.

    


    
      	
               
      

            	
              10.

            	
              Notices. All
      notices and other communications required or permitted under this Option
      will be delivered to the parties at the address set forth below their
      respective signature blocks, or at such other address that they hereafter
      designate by notice to all other parties in accordance with this Section.
      All notices and communications will be deemed to be received in accordance
      with the following: (i) in the case of personal delivery, on the date of
      such delivery; (ii) in the case of facsimile transmission, on the date on
      which the sender receives confirmation by facsimile transmission that such
      notice was received by the addressee, provided that a copy of such
      transmission is additionally sent by mail as set forth in (iv) below;
      (iii) in the case of overnight air courier, on the second business day
      following the day sent, with receipt confirmed by the courier; and (iv) in
      the case of mailing by first class certified mail, postage prepaid, return
      receipt requested, on the fifth business day following such
      mailing.

            


    

    


    
      
         

      

      
        -5-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              11.

            	
              Compulsory
      Arbitration.  Any controversy, claim and/or dispute
      arising out of or relating to this Option or the breach hereof or subject
      matter hereof (including any action in tort) will be finally and fully
      settled by arbitration in Maricopa County, Arizona in accordance with the
      then-existing Commercial Arbitration Rules of the American Arbitration
      Association (the “AAA”), and judgment upon the award rendered by the
      arbitrators may be entered in any court having applicable
      jurisdiction.  Written notice of demand for arbitration will be
      given to the other parties and to the AAA within six (6) months after the
      controversy, claim or dispute has arisen or be barred, and in no event
      after the date when the institution of court proceedings based on such
      dispute would be barred by the applicable statute of
      limitations.  Controversies, claims and/or disputes will be
      resolved by one arbitrator selected by the mutual agreement of the parties
      or, failing that agreement within forty-five (45) days after written
      notice demanding arbitration, by the AAA.  There will be limited
      discovery prior to the arbitration hearing as follows: (i) exchange of
      witness lists and copies of documentary evidence and documents related to
      or arising out of the issues to be arbitrated, and (ii) depositions of all
      Party witnesses. Depositions will be conducted in accordance with the
      rules or code of Civil Procedure of the jurisdiction in which the
      arbitration is conducted, and a court reporter will record all hearings,
      with such record constituting the official transcript of such
      proceedings.  All decisions of the arbitrator will be in
      writing, and the arbitrator will provide reasons for the
      decision.  Each of the Parties will bear its own respective
      attorney’s fees and costs in accordance with any dispute or
      arbitration.

            


    

    


    
      	
               
      

            	
              12.

            	
              Governing Law.
      This Option will be deemed to have been executed in the State of Delaware
      and will be governed and construed as to both substantive and procedural
      matters in accordance with the laws of the State of Delaware, but
      excepting (i) any State of Delaware rule which would result in judicial
      failure to enforce the arbitration provisions of Section 11 hereof or any
      portion thereof and (ii) any State of Delaware rule which would result in
      the application of the law of a jurisdiction other than the State of
      Delaware.  Any dispute arising from this Option must be filed in
      the county in which the principal office of SurfNet is
      located.

            


    

    


    
      	
               
      

            	
              13.

            	
              Complete
      Agreement. This Option contains the entire agreement of the parties
      relating to the subject matter hereof and supersedes all prior agreements
      and understandings, whether written or oral, with respect to such subject
      matter, and the Parties have made no agreements, representations or
      warranties relating to the subject matter of this Option which are not set
      forth herein.  If a conflict is determined to exist among any of
      the aforementioned agreements, the terms of this Option will
      control.

            


    

    


    
      	
               
      

            	
              14.

            	
              Amendment. This
      Option may not be amended, modified, superseded, canceled or terminated,
      and any of the matters, covenants, representations, warranties or
      conditions hereof may not be waived, except by written instrument executed
      by the Parties or, in the case of a waiver, by such of the Parties to be
      charged with such waiver.

            


    

    


    
      
         

      

      
        -6-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              15.

            	
              Waiver. The
      failure of either of the Parties to insist upon strict adherence to any
      term, condition or other provision of this Option will not be considered a
      waiver or deprive that Party of the right thereafter to insist upon strict
      adherence to that term or any other term, condition or other provision of
      this Option.

            


    

    


    
      	
               
      

            	
              16.

            	
              Headings. The
      headings of this Option are solely for convenience of reference and will
      not affect its interpretation.

            


    

    


    
      	
               
      

            	
              17.

            	
              Severability.
      If any one clause or part of this Option is deemed invalid, unenforceable
      or illegal by the arbitrators or court of competent jurisdiction, then it
      is severed from this Option and the rest of this Option remains in full
      force and effect. Optionee acknowledges the uncertainty of the law in this
      respect and expressly stipulates that this Option be given the
      construction which renders its

            


    

    


    
      	
               
      

            	
              18.

            	
              Further
      Assurances..  The Parties will sign such other
      instruments, cause such meetings to be held, resolutions passed and
      by-laws enacted, exercise their vote and influence, do and perform and
      cause to be done and performed such further and other
  acts.

            


    

    


    
      	
               
      

            	
              19.

            	
              Legal
      Counsel.. Optionee hereby
      acknowledges that he  has been advised that the party who
      drafted this Option on behalf of SurfNet is a licensed attorney, that such
      party is representing SurfNet’s interests only and that Optionee been
      urged to retain legal counsel to advise
him.

            


    

    


    
      	
               
      

            	
              20.

            	
               Registration
      Rights.  The Optionee shall have registration rights
      with respect to the Warrant as set forth in the Registration Rights
      Agreement of even date herewith between the Optionee and the
      Company.

            


    

    


    
      	
               
      

            	
              21.

            	
              Miscellaneous..

            


    

    


    
      
         

      

      
        -7-

        
          

        

      

      
         

      

    

    
      	
               
      

            	
              (a)

            	
              SurfNet
      covenants that it will at all times reserve and keep available, solely for
      the purpose of issue upon the exercise hereof, a sufficient number of
      shares of Common Stock to permit the exercise hereof in full and a
      sufficient number of shares of Common Stock to permit the conversion of
      all such shares of Common Stock.

            


    

    


    
      	
               
      

            	
              (b)

            	
              The
      terms of this Option shall be binding upon and shall inure to the benefit
      of any successors or assigns of SurfNet and of the Optionee or Optionees
      hereof and of the Common Stock issued or issuable on the exercise
      hereof.

            


    

    


    
      	
               
      

            	
              (c)

            	
              No
      Optionee of this Option, as such, shall be entitled under this Option to
      vote or receive dividends (except as provided in paragraph 2 hereof) or be
      deemed to be a stockOptionee of SurfNet for any
  purpose.

            


    

    


    
      	
               
      

            	
              (d)

            	
              Except
      as otherwise provided herein, this Option and all rights hereunder are
      transferable by the Optionee hereof in person or by duly authorized
      attorney on the books of SurfNet upon surrender of this Option, properly
      endorsed, to SurfNet.  SurfNet may deem and treat the Optionee
      of this Option at any time as the absolute owner hereof for all purposes
      and shall not be affected by any notice to the
  contrary.

            


    

    


    
      	
               
      

            	
              (e)

            	
              By
      acceptance of this Option the Optionee represents and Options to SurfNet
      that such Optionee is acquiring this Option and will acquire any shares of
      Common Stock issued upon the exercise of this Option for the Optionee's
      own account with the intent of holding such Option or shares for
      investment and without the intent of participating directly or indirectly
      in a distribution of the same.  Any certificates for Common
      Stock issued upon the exercise of this Option shall bear a legend similar
      to the legend appearing on the first page of this
  Option.

            


    

    


     

    
      
         

      

      
        -8-

        
          

        

      

      
         

      

    

    IN WITNESS WHEREOF, SurfNet has caused
this Option to be signed by its duly authorized officers and its corporation
seal to be affixed hereto as of the date first written on.

    


    
      	 
      	
              SURFNET
      MEDIA GROUP, INC.

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	
              By:

            
	 
      	
              Robert
      Arkin

            
	 
      	
              Chairman

            


    

    


    Accepted:

    


    ______________________________

    Eric
Schedeler

     

    
      
         

      

      
        -9-

        
          

        

      

      
         

      

    

    ASSIGNMENT

    


    (To be
Executed by the Optionee to effect a Transfer of the foregoing
Option)

    


    


    


    FOR VALUE RECEIVED, the undersigned
hereby sells, and assigns and transfers unto the foregoing Option and the rights
represented thereto to purchase shares of Common Stock of SURFNET MEDIA GROUP,
INC., in accordance with the terms and conditions thereof, and does hereby
irrevocably constitute and
appoint  ______________________________________

     

    Attorney
to transfer the said Option on the books of SurfNet, with full power of
substitution.

    


    


    


    
      	      
              _________________________________

            	
              By
      _________________________________

            
	      
              _________________________________

            	
              Signature_________________________________

            
	 
      	 
      
	 
      	 
      
	 
      	 
      
	 
      	 
      
	
              Address

            	 
      
	 
      	 
      
	 
      	 
      
	
              Dated:

            	 
      
	 
      	 
      
	
              In
      the presence of:

            	 
      
	      
              _________________________________

            	 
      


    

    


    


    
      
         

      

      
        -10-

        
          

        

      

      
         

      

    

    


    


    SUBSCRIPTION
FORM

    


    (To be
Executed by the Optionee to Exercise the Rights to Purchase Stock evidenced by
the foregoing Option)

    


    TO:           SURFNET
MEDIA GROUP, INC.

    


    The undersigned hereby exercises the
right to purchase _______ shares of Common Stock covered by the attached Option
in accordance with the terms and conditions thereof, and herewith makes payment
of this Option Price of such shares in full.

    


    The undersigned represents and Options
to you that the undersigned is acquiring such shares for the undersigned's own
account with the intent of holding such shares for investment and without the
intent of participating directly or indirectly in a distribution of such
shares.

    


    


    
      	 
      	
              _________________________________

            
	 
      	
              By:
      _____________________________

            
	 
      	
              Signature

            
	 
      	 
      
	 
      	
              _________________________________

            
	 
      	
              _________________________________

            
	 
      	
              Address

            


    

    


    


    Dated:
_________________

     

    
      
         

      

      
        -11-